Mears Group PLC

("Mears" or the "Group" or the "Company")

Interim Results for the 6 months ended 30 June 2025

Excellent first half performance; solid growth in Maintenance activities

and strengthening operating margin

Mears Group PLC, the leading provider of housing services to the public and regulated sectors in the UK, announces its interim financial results for the six months ended 30 June 2025 ("H1 2025").

Financial Highlights

·      Revenues reduced by 4% year-on-year to £559.4m (2024: £580.0m), with some normalisation in the Group's Management-led activities, partially offset by good revenue growth of 8% in Maintenance-led activities  

·      Profit before tax increased by 5% to £32.0m (2024: £30.5m)

·      Operating margin (pre-IFRS 16) continued to strengthen to 5.6% (2024: 5.2%)

·      Strong conversion of EBITDA to Operating cash reflecting cash generative business model and quality of earnings

·      Cash conversion at 105% of EBITDA (2024: 119%)

·      Average daily net cash of £66.7m (2024: £66.4m)

·      Diluted EPS up 20% to 27.68p (2024: 23.12p) driven by profit growth and share count reduction

·      Interim dividend of 5.60p (2024: 4.75p), an increase of 18%, reflecting continued strong earnings and cash performance and Board's confidence.

·      Completed fifth share buyback programme; £16.0m cash consideration, 4.3m shares at an average price of 371p per share

* - see Alternative Performance Measures for definitions and reconciliation to statutory measures

Operational and Strategic Highlights

·      100% contract retention over the last 12-month period through which the Group has secured new orders to a value approaching £1.5bn. Award of the new contract with Milton Keynes City Council concluded this abnormally busy period for contract rebids

·      Contract retention success rate is evidence of the strength of the Group's service delivery and customer relationships

·      Successful mobilisation of a contract with Moat Homes, covering c.22,000 properties in the South of England

·      New works secured with London Borough of Brent and Aberdeenshire Council

·      Additional investment in people and technology as key enablers to expand our capabilities to service and support the new emerging market opportunities in Compliance and Asset Management

·      Investment in key account management to ensure that we are well positioned when the existing AASC work comes up for re-procurement

Current trading and outlook

·      The business has continued to perform strongly. Increasing confidence in growth momentum of Maintenance-led activities

·      The precise timing of the normalisation of AASC revenues remains uncertain, but there is a clear political drive to see all hotel accommodation exited during 2026, reflected in today's guidance

·      The Board expects adjusted profit before tax for the full year to be modestly ahead of market expectations. This positive performance also gives the Board increasing confidence in its expectations for the next financial year

Dividend

·      Interim dividend of 5.60p will be payable on 2 October 2025 to shareholders on the register of members at the close of business on 12 September 2025. The shares will go ex-dividend on 11 September 2025.

Lucas Critchley, Chief Executive Officer of the Group, commented:

"I am delighted to report a period of strong operational, financial and strategic performance. We have continued to make progress against each of our key strategic goals; delivering growth in maintenance activities, developing a full compliance and asset management offer, and positioning the Group to deliver additional housing services to Central Government.  Importantly, we have continued to do the basics well, which underpins our drive for both service excellence and strengthening commercial performance."

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

About Mears

Mears is a leading provider of services to the Affordable Housing sector, providing a range of services to individuals within their homes. We manage and maintain around 450,000 homes across the UK and work predominantly with Central Government and Local Government, typically through long-term contracts. We equally consider the residents of the homes that we manage and maintain to be our customers, and we take pride in the high levels of customer satisfaction that we achieve.

Mears currently employs over 5,000 people and provides services in every region of the UK. In partnership with our Housing clients, we provide property management and maintenance services. Mears has extended its activities to provide broader housing solutions to solve the challenge posed by the lack of affordable housing and to provide accommodation and support for the most vulnerable.

We focus on long-term outcomes for people rather than short-term solutions and invest in innovations that have a positive impact on people's quality of life and on their communities' social, economic, and environmental wellbeing. Our innovative approaches and market leading positions are intended to create value for our customers and the people they serve while also driving sustainable financial returns for our providers of capital, especially our shareholders.

BUSINESS REVIEW

The Board is delighted to report a period of strong operational, financial and strategic progress.

Mears' strong customer centric approach, combined with a granular operational focus, that is underpinned by our proprietary IT operating platform, remain our key differentiators. The first half saw a continued drive for operational excellence through further enhancements to our robust branch performance review process which, as well as delivering further service improvements, has also been a key driver of strengthening commercial performance and risk management. A particular focus in the first half has been ensuring that the strict disciplines demanded when self-delivering works are replicated when services are delivered using our broader supply chain.

Our strong performance is underpinned by the quality of our employees who continually demonstrate diligence, empathy and a dedication to deliver a great service user experience, in an often-challenging work environment.

We have made good progress in the last 12 months on the delivery of our new strategic plan (FY24 to FY28). This plan reinforced the Group's ambition to be the leading provider of housing services to the public and regulated sectors and identified significant untapped opportunities in those existing markets. The Group has performed well against its key strategic goals. Key areas of progress in the period have included:

·      The Group has reported 8% growth in our Maintenance-led activities, reflecting the strong regulatory market drivers and underpinned by a 100% contract retention over the last 12-month period. Our business plan recognised the importance of contract retention, particularly during 2024/25 during which one third of the Group's maintenance activities were subject to a re-procurement. The award of the new contract with Milton Keynes City Council concluded this abnormally busy period of contract rebids, against which the Group has secured new orders at a value approaching £1.5bn. The 100% contract retention success rate is evidence of the strength of the Group's service delivery and customer relationships.

The first half saw the mobilisation of a contract with Moat Homes, covering c.22,000 properties in the South of England. This new contract is for a period of 18 months, with an estimated contract value of £12m, under which Mears will deliver responsive and voids maintenance services. The contract has started strongly, with a marked improvement across a number of key operational performance measures. The procurement for the long-term contract opportunity has commenced.

In addition, the Group secured new works with London Borough of Brent and Aberdeenshire Council, which is covered in greater detail below.

·      A key component of the Group's strategy is developing its Compliance and Asset Management service offering. The building compliance market is a significant opportunity, comprising six well-defined areas (gas, asbestos, fire, electrical, water hygiene, lifts), plus increasing regulation driving the development of a number of new tangible services (addressing damp, mould & condensation). The market is complex, relatively fragmented and largely single service led. The challenge and the opportunity to Mears, is to provide a joined up, unified compliance model and to demonstrate the clear benefits of this model to our customers. Compliance data needs to be combined with broader asset management data, to enable a forward-thinking approach to stock investment. Mears aims to be in a position to deliver to this broader strategic requirement. During the first half, we have applied additional investment in people and technology to develop this offer.

·      We place emphasis on ensuring that we are performing at a high level and understanding the developing needs and requirements of Central Government. It is important that our positive contribution is known and understood by stakeholders. We have the ambition to deliver additional housing, welfare and wraparound services to this key client group and we have continued to invest in key account management to ensure that we are well positioned when our existing work comes up for re-procurement.

The business plan recognised the need to make further investment in people and technology as key enablers to deliver an accelerated program of IT development and expand our capabilities to service and support the new and emerging market opportunities.

OPERATIONAL REVIEW

* - see Alternative Performance Measures for definitions and reconciliation to statutory measures

Group revenues reduced by 4% year-on-year to £559.4m (2024: £580.0m). However, Maintenance-led activities delivered 8% growth, with regulatory market drivers increasing spend from the Group's Registered Provider clients and further underpinned by the 100% contract retention achieved over the last 12 months. As anticipated, Management-led activities reduced by 14%, owing to the continued normalisation of revenues relating to the Asylum Accommodation and Support Contract. ('AASC') which reduced by some 20%. The other Management-led activities delivered modest growth, predominantly from a short-term contract to support the Afghan Relocation and Assistance Policy ('ARAP'), delivered for the MoD, which went live in January 2024 and is due to conclude in November 2025.

Profit before tax increased by 5% to £32.0m (2024: £30.5m). The Group has used a pure, unadjusted figure as its headline profit measure reflecting the steady state of the business, and quality of the earnings.

The Group operating margin increased to 5.6% (2024: 5.2%). As detailed previously, the reinvigorated branch performance review process has been a key factor in the improved operating margins, challenging operational performance and demanding strict adherence to business systems and processes. Whilst the primary focus of these reviews is not financial, the impact upon margin and working capital has been particularly pleasing. The Group has continued to apply a disciplined approach to pricing, and this robust approach has also been reinforced during recent contract re-bids.

Notwithstanding the strong progress on operating margins, April 2025 saw the introduction of the increased rate to employer's National Insurance and a reduction in the associated threshold, which is particularly significant in respect of employees at the lower end of the pay scale. This change will increase the Group's annual payroll cost by c.£5 million and the full-period impact will be felt in the second half. Whilst this tax increase naturally applies additional cost pressure, the increasing focus on branch performance has created efficiency improvements to provide some margin protection.

OUR PEOPLE

Underpinning our strong performance is a motivated and engaged workforce.  Our levels of staff retention continue to strengthen, and we are committed to growing our own talent and providing opportunities for internal progression.  We have invested in new technology to aid training and development which will ensure we provide the opportunities for staff to develop the required knowledge, skills and behaviour.

We continue to be future focused in our work with apprenticeships.  We have increased our apprentice intake year on year, with 97% of those completing their apprenticeship in the last 12 months achieving full time roles within the Group.

Many of our apprentices come from disadvantaged backgrounds as we focus on recruitment from our local communities, creating opportunities to improve social mobility.  This year we have increased our work with schools, delivering outreach programmes and initiatives aimed at improving opportunities for young people. Our success in improving social mobility was demonstrated in the Social Mobility Employer Index as we are now ranked in 19th place. 

An increased focus and approach to supporting fairness and inclusion has resulted in the implementation of a Recruitment Diversity Dashboard and investment in employee networks to support key issues such as mental health.

BUSINESS DEVELOPMENT

During the first half, the Group secured new orders of £280m (excluding extensions) with a bid success rate, by value, of over 80% (FY 2024: 41% excluding North Lanarkshire). The Group's order book has been maintained at £3.0bn; more importantly, the strong period of contract retention has improved the near-term revenue visibility.

A key highlight in the first half was the successful retention of the new Housing Repairs and Maintenance Works and Services Contract with Milton Keynes City Council ('MKCC'). The MKCC partnership has been a flagship contract for Mears since it was originally secured in 2016, and the award of the new contract reflects the high-quality service that Mears has provided to the residents of Milton Keynes for almost a decade. The new contract, which will commence during August 2025, is valued at £230m over the initial period of five years and will see the Group deliver both planned and reactive repairs and maintenance works across the Council's housing stock. There is an option for the Council to extend the contract for a further five years which would increase the total contract value to an estimated £475m.

The Group secured a significant contract award with the London Borough of Brent, a new customer relationship. The contract is for the provision of responsive repairs and planned works to the client's housing stock of over 8,000 units and is valued at £39m for an initial period of five years, with extension options for a further five years. The new contract will commence in October 2025.

Mears' increased focus and ambition to develop and extend its standalone capital works and retrofit capability was a key output from the strategic review. This has resulted in the award of a contract with Aberdeenshire Council which is valued at £30m over the initial four-year period, with an option of an additional year extension. There is an active bid pipeline in this area, and additional resource has been applied to increase capacity for bidding and estimating. The Group is adopting a highly selective approach, focusing on work opportunities that are more technical in nature and where there is a lower weighting towards price.

The Social Housing Decarbonisation Fund ('SHDF') Wave 3 saw Mears submit applications on behalf of clients that have secured £30m of grant funding, contributing to over £60m of total works value to be delivered over the course of 2026 and 2027. It is the grant funded element that represents new value to the Group's order book as the remainder will be funded from existing client budgets. There will be additional opportunities for the Group in Wave 4 of the SHDF funding applications.  

The Government has commenced preliminary market engagement to validate the strategy for future asylum procurement and the replacement of AASC. The timing of any procurement and the precise structure for the future contract mechanism is subject to change, with the new contract currently estimated to start in September 2029. The Group considers itself to be well placed to play a role in the long-term provision of services to this vulnerable service user group.

CASH FLOW AND WORKING CAPITAL MANAGEMENT

The Group has continued to deliver strong cash performance, with conversion of EBITDA to operating cash in the first six months of 105% (2024: 119%). The Group reported an adjusted net cash position at 30 June 2025 of £81.1m (2024: £107.3m). Of greater significance is the day-to-day performance, with average daily adjusted net cash for the first six months of £66.7m (2024: £66.4m).

EARNINGS PER SHARE ('EPS'), DIVIDEND AND CAPITAL ALLOCATION

Diluted EPS increased by 20% to 27.68p (2024: 23.12p). This improvement was driven by a combination of an increase in profit (5%), a reduction in the weighted average number of shares as a result of the share buyback programme (13%), and a decrease in the non-controlling interest as a result of the new North Lanarkshire contract sitting within a wholly-owned subsidiary (2%).

Positively, the business model carries a low capital expenditure and working capital requirement. Notwithstanding the Group's balance sheet strength, the Board recognises that maintaining a modest net cash position provides reassurance to our key stakeholders.

Mears recognises the importance of supporting our Home Office client in securing long-term residential accommodation to replace the use of short-term contingent solutions. Whilst property leasing remains the Group's preferred solution for sourcing properties, the Board has approved the allocation of capital to support the requirements of the AASC and to ensure that good quality property can be sourced across a wider dispersal area. During the first half, the Group purchased £23.8m of property and expects to expend a similar sum during the second half. On completion of this latest tranche, the Executive team intends to complete a sale and leaseback whilst securing these properties for the remainder of the AASC term.

Given the excellent trading performance of the Group, the continued strong cash performance and the positive outlook, the Board is pleased to propose an interim dividend of 5.60p per share (2024: 4.75p). The Board continues to believe that a capital allocation policy combining a progressively growing dividend within a cover range of 2.0-2.5x, with the return of any excess capital via on-market buyback purchases of shares, remains appropriate. In the short term, the Board may allow dividend cover to increase beyond the range outlined above, aligning to profits trajectory.

During the first half, the Board approved a return of surplus capital of £16m to shareholders, implemented through a buyback programme of on-market purchases. This resulted in the purchase and cancellation of 4.3m ordinary shares of 1p each at an average price of 371p. Over the last two years, buybacks have reduced the Group's ordinary share count by 27.4m shares at an average price of 325p and a total cash cost of £89m. In addition, the Employee Benefit Trust ('EBT') holds 4.1m shares.

Our capital allocation policy remains consistent and prioritises the allocation of capital to support our organic growth strategy, augmented by modest strategic bolt-on acquisitions to further enhance our service offering and accelerate the delivery of our plan. The allocation of capital for the acquisition of properties to support the requirements of AASC, and the anticipated unwind of contract liabilities referenced below, will absorb some of the surplus cash. The strong cash generation underpins a progressive dividend and other routes for returning surplus funds to shareholders remain in focus.

OUTLOOK AND GUIDANCE

The business has continued to report strong performance. The Board is increasingly confident in the growth momentum within its Maintenance-led activities. The precise timing of the normalisation of AASC revenues remains uncertain, but there is a clear political drive to see all hotel accommodation exited during 2026 which is reflected in our guidance below.

The Group is well placed to deliver upper single digit percentage growth in its Maintenance-led activities. The strong period of contract retention has increased confidence further in this area. The new North Lanarkshire Council contract is showing an upward trajectory which will continue into FY26. The increased bid activity in respect of standalone capital works will augment growth in this segment. The Group has four material contracts, with total annual revenues of c.£75m, expiring in FY26 which are all subject to current re-procurement. The Group feels well positioned on each re-bid.

In the short term, we are likely to see a reduction in revenues in the Management-led division owing to some normalisation in AASC revenues and the conclusion of works relating to ARAP. The primary focus within Asylum remains on securing sufficient good quality, long-term residential property to remove the requirement for short-term contingent solutions. The number of hotels in use at 30 June has reduced to less than half the peak level, and further hotels are expected to be exited during the third quarter. The Executive team anticipates that Asylum revenues will continue to normalise through to the end of FY26. The precise timing remains uncertain.

The strategic plan recognised the need to make further investment to expand our capabilities to service and support the new and emerging market opportunities. Investment in headcount will ensure that the Group has the required range of capabilities to develop its Compliance and Asset Management offer (35 heads, £1.8m), extend its contract bidding capabilities (5 heads, £0.4m), and deliver an accelerated program of IT development (28 heads, £1.7m). This is a relatively modest additional investment to support the Group's organic growth. Given the timing of the new appointments, this investment had little impact on the cost base in the first half. It is anticipated that these positions will be fully onboarded by the end of 2025 and are already absorbed within market guidance for 2026.

The Board has previously indicated an ambition to maintain an operating margin (on a pre-IFRS 16 basis) in the 5.0-6.0% range. Whilst the Group has stated its desire to deliver top-line growth, the business remains highly selective and disciplined in its approach, and operating margin remains a key metric. The Executive team is mindful that the elevated Management-led revenues have delivered additional economies of scale and an increased level of overhead recovery, which has been a further factor behind an increasing operating margin across recent periods. The Executive team is confident that, as the elevated Management-led revenues normalise, and some of this increased overhead recovery diminishes, that this can be partly mitigated by efficiency improvements within the business.

Whilst the strong operating cash generation over recent periods reflects the high quality of earnings, combined with strong working capital management, the Group has enjoyed a timing benefit in respect of certain contractual mechanisms linked to payments on account and gainshares which are reflected in an elevated contract liabilities balance. This working capital benefit, which has accrued over prior periods, is anticipated to materially unwind during the second half of FY25, whilst the business is expected to continue to deliver strong underlying cash generation.

ALTERNATIVE PERFORMANCE MEASURES ('APM')

The Interim Report includes both statutory and adjusted performance measures. APMs are considered useful to stakeholders in assessing the underlying performance of the business, adjusting for items that could distort the understanding of performance in the year and between periods, and when comparing the financial outputs to those of our peers. The APMs have been set considering the requirements and views of the Group's investors and debt funders, among other stakeholders. The APMs and KPIs are aligned to the Group's strategy.

Reflecting the steady state of the business and the quality of the earnings, the Group has used unadjusted profit before tax and earnings per share as its headline profit measures. The Group makes regular reference throughout the Interim Report to an adjusted operating profit, measured before the impact of IFRS 16, and stated both in pounds (£) and as a percentage margin (%). This adjusted measure is a key metric for the senior executive team when assessing new contract opportunities and existing branch performance.

The Group also uses an adjusted net cash measure which excludes IFRS 16 lease obligations from the statutory net debt measure. This is referenced in both a spot measure (on 30 June and 31 December) and in a daily average.

These APMs should not be considered as a substitute for or superior to International Financial Reporting Standards (IFRS) measures, and the Board has reported both statutory and alternative measures with equal prominence throughout the Interim Report.

The method of calculation and a reconciliation between each APM and the relevant statutory measure are detailed below, together with an explanation as to why management considers the APM to be useful in helping users to have a better understanding of the Group's underlying performance. This section of the Interim Report also provides additional analysis to give the user an easier route to understand underlying performance and deriving their own profit and EBITDA measures.      

1     Operating profit and EBITDA measures include share of profits of associates.

2    Includes loss on disposal of £749,000 (H1 2024: £262,000, FY 2024: £508,000). The FY 2024 figure also includes loss on sale and leaseback of £283,000.

3    Includes profit on disposal of £43,000 (H1 2024: £nil, FY 2024: £150,000) and impairment of £nil (H1 2024: £nil, FY 2024: £633,000).

The Directors use the Operating profit pre-IFRS 16 measure to generate the Group's headline operating margin. Whilst this generates a lower operating margin, it reflects how the underlying contracts have been tendered, how the senior executive team assess performance, and is also more aligned to the underlying cash generation. In addition, this measure is also used for the purposes of assessing the Group's compliance with its banking covenants, which utilise pre-IFRS 16 measures.

1         Operating profit includes share of profits of associates.

IFRS 16 impact upon profit before tax

The profit impact in respect of IFRS 16, which was included within the APM analysis above, is detailed below:

Adjusted net cash

The Group excludes the financial impact of IFRS 16 from its adjusted net cash measure. This adjusted net cash measure has been introduced to align the net borrowing definition to the Group's banking covenants, which are required to be stated before the impact of IFRS 16.

The Group does not recognise lease obligations as traditional debt instruments given a significant proportion of these leases have break provisions which allow the Group to cancel the associated lease obligation with minimal associated cost. A reconciliation between the net debt and the adjusted measure is detailed below:

In addition to the average daily net cash measure, the Group also measures the cash inflow from operating activities as a proportion of EBITDA and this cash conversion percentage is a key performance measure, reflecting the Group's ability to convert profit into cash. The Board targets a measure of more than 90%, and performance that is greater than 100% is considered outstanding. The strength of the Group's operating cash flows reflects both the underlying quality of the earnings, and the Group's operating systems which underpin a strong cash culture.

Statutory profit before tax

The Board believes that the statutory Profit before tax measure is a true reflection of the underlying performance of the business, and no alternative measure is considered necessary or appropriate. The Board recognises that any reported profit will include singular components which, in isolation, may be considered unusual, infrequent, non-recurring or non-underlying. Additional detail is disclosed separately within the notes to the financial statements, and these provide a better understanding as to the underlying performance in the period.